Greek referendum.

29th June 2015

Ian Copelin, Investment Director, my wealth comments: “With reference to my article on 7 January, titled “it took forever and then it took a night”, it appears that the night is Sunday 5 July!

Greece has announced that its banks will remain shut this week following the turmoil created by the surprise announcement on Saturday by Prime Minister, Alexis Tsipras, that Greece would hold a referendum on 5 July to decide whether to accept the latest bailout terms offered by the ‘troika’ – the name given to the European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB).

While it may appear to be a simple question, in reality the choice is either accept the bailout terms and have more austerity or refuse and see Greece default on its debts and suffer rapid economic contraction and probably exit the euro.

Whilst Alexis Tsipras and his Syriza party was only elected in January on the mandate to change the bailout terms and end austerity, I would expect that the referendum will result in a majority for the ‘Yes’ camp. Although the Greek population is against further tax increases and spending cuts, opinion polls show a majority of the Greek population supports retaining the single currency – and the alternative, default and rapid economic contraction doesn’t look that appealing for a country that has already seen its economy contract by a quarter since 2010 and has 25% unemployment.

I have long argued that equity markets can deal with any eventuality, but hates uncertainty and Greece’s referendum has created uncertainty that will dictate investor sentiment over the next week. Whilst today’s equity market sell-off may be unsettling (as I write the FTSE-100 is down 100 points, or 1.48%, at 6,753), it was important not to panic: this Greek-related volatility should be relatively short-lived and global central banks continue to be highly accommodative and I believe this tailwind should continue to boost global economic growth.”